New Study Finds Options Effective in Up and Down Markets

In "Broad-Based Stock Options Before and After the Market Meltdown," James Sesil of Rutgers and Maya Krumova of the N.Y. Institute of Technology use NCEO lists of companies with broad-based options in 1998 and 2000 to evaluate the impact of these plans on productivity. In the 1995-1997 period, they found that companies with broad-based options had productivity levels 22% to 38% higher than comparable firms. Smallest companies had the lowest differential, medium-sized the highest, with large companies in the middle. In 2000-2002, medium and large-sized companies retained these differentials; small companies declined slightly from 22% greater to 18.6% greater.

The results indicate that the declining stock market did not undermine the impact of broad options. Moreover, contrary to popular perception that the incentive effects of options should be lower in larger companies (because individual employee efforts seem to matter less), company size does not seem to be consistently related to performance.